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Sentiment Overview: Week Of September 28st 2007 at Trader’s Narrative

Here’s this week’s sentiment commentary:

Sentiment Surveys
LowRisk is showing the most positive picture with bulls falling to 29.4%. In contrast, AAII bulls are at 49% and the II bulls at 55.6%. I don’t know about you but I’ll take the latter surveys over the one exception.

It isn’t surprising to see the AAII bulls jump so high, so fast. After all, even in the darkest days of August, their pessimism was guarded. They never really got spooked. Now that the market has recovered, they’ve jumped on again. From a contrarian perspective, that doesn’t bode well for the market going forward.

Narrow Range & Low Volatility
Since I suggested to sell something, the market has entered a narrow range, meandering with no conviction. The rhythm of the markets is such that expansion tends to be followed by contraction. Just as you need to breath out, before you can breath in again.

Volatility (VIX) which spiked to 37.50 just a month ago has collapsed to less than half. That doesn’t automatically mean that the market can’t continue to climb. Remember, low volatility has no correlation to market behaviour (as opposed to volatility spikes). What it does tell us is that the low risk opportunity to buy was back then when the VIX spiked, not here — click to see a long term chart of the relative VIX index.

Magazine Cover Indicator
economist cover credit crisis Sept 2007Here is this week’s Economist magazine. The gun has an inscription “Made in America” - implying that the credit crisis began in the US and as the trigger is being pulled, it will “trigger” a new downturn. At least, that is the question the cover is asking rhetorically.

There is no question that this cover is negative but the metaphor of a gun being pulled is a bit awkward so I’m not sure if it qualifies as one of the classic magazine cover indicators.

In any case, as a contrarian indicator, I would interpret this mildly bullish for the market and for the whole credit mess. I think the worst is behind us. The market still needs to mop up the mess and that will take time, but it doesn’t make sense to wallow in fear and loathing about something when it is on the cover of magazines and when journalists are writing related articles at the fastest clip ever.

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11 Responses to “Sentiment Overview: Week Of September 28st 2007”  

  1. 1 Shepard

    Wow…just “wow” on the Economist cover. Seems a bit brutal, IMO. BTW…I really enjoy your weekly sentiment commentary. They remind me to step out of my insular trading comfort zone and look around at the rest of what influences the emotional market.


  2. 2 Johan

    Let’s take a look on sentiment from another perspective. Much further away.

    We have seen crisis articles about hedge funds and about the housing market, but still there has been no real crisis in these markets! We have a very low number of bankrupcies in all these crises sectors. And still there have been some kind of panic in the market.

    So we haven’t really had a blown out super spike kind of thing going on in the market yet. THIS could be a sign of warning for the future of the market.

    I still vote for an upgoing market for now.

    Have a nice weekend!


  3. 3 Bourne

    Hi all. Today we have seen new highs and a possible downturn. Given the low market breadth we have been having along this rally, I found it advisable to check with Paul Desmond’s analysis of market tops. Today and in eventual new highs.

    While I have not the complete NYSE data, here it is the main point, i.e. % stocks in 52w highs. According to WSJ online:

    383 new highs on a total of 3.405 NYSE stocks = 11,25%

    In the 14 market tops analysed by Desmond, the breadth was:
    max = 10,97% (1976)
    min = 1,6% (1960)
    average = 5,98%

    So it seems that there is room for a correction then new highs (even if they are more weak). Also, I don’t see a massive participation of little investors, so usual in building a market top. But let’s be aware that we have touched the red line.

  4. 4 Johan

    Good comment Bourne!

  5. 5 Bourne

    Now, I see two possible evolution from here:
    (1) We are forming a major market top: we could correct a bit, achieve one, two, more weak, new highs in indexes with small investors entering and begining a bear market
    (2) We are just in the very beginning of a outstanding bullish rally. Most stocks and money are just waiting expectantly, concentrating in a few stocks, but little by little this weak market breadth will grow.

    One should be quite neutral about this two possibilities. Still, I agree a bit more with the bullish development. I have just seen the graphs for NYSE new highs/new lows of StockCharts here:
    Equities > Cumulative Charts
    As you can see, the new highs/lows moving averages were bearish, then neutral and now are beginning to crooss upside.

  6. 6 SS

    I’m trying to obtain 10 or more years (i.e. 1997 to present) of AAII sentiment and Investor Intelligence Advisor sentiment data that may easily be transferred to Excel spreadsheet format. It is remarkably difficult to obtain BOTH of these historical data sets at the same time from vendors, so I am glad to pay somebody here to obtain this data. Please let me know if willing to help me.

  7. 7 Babak

    SS, I’m pretty sure I have both AAII and II data. Let me double check and I’ll contact you. Is the email you provided in your comment (visible only to me) correct?

  8. 8 SS

    Thanks for responding. Yes, the email is correct. I really don’t expect you just to give it to me for free however (you probably had to pay for it and you’re providing a nice service here).

  9. 9 Robert Sanchez


    I have nearly 7 years of both of those data sets that I have culled from Barrons. The data is already loaded onto an Excel spreadsheet. I also have Consensus data and Market Vane data for the same years. Moreover, I have almost 4 years of UBS sentiment data. Make me an offer if you are interested. I can be very reasonable.

    By the way, what profession are you in?



  10. 10 SS

    Robert, thanks but I’d prefer at least 10 to 15 years of data. I’m a M.D.. Why do you ask?

  1. 1 The Stock Market Carnival - Oct 1, 2007 Edition

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